In the fifth progress letter dated 15 June 2020, the Dutch Minister of Social Affairs and Employment and the State Secretary for Finance (also on behalf of the State Secretary for Economic Affairs and Climate Policy) inform the lower house of Dutch parliament on the developments and follow-up steps regarding the measures applicable to ‘working as a self-employed person’.
What does this mean for you?
If you are a principal, and you hire a contractor for performing work, this working relationship may in fact qualify as an employment relationship (‘deemed employment’). Consequently, the principal must withhold (and remit) payroll tax and social security contributions in respect of the remuneration paid. As this is a risk, it is important to assess the nature of the relationship between the principal and the contractor in advance. The government is currently examining the options to provide the principal advance certainty on the classification of the employment relationship with the contractor. In December 2019, the government considered proposals on the ‘minimum rate’ (for the lower end of the market) and the 'self-employed person's statement’ (for the higher end of the market), but in the fifth progress letter, however, it rejects these proposals, and fully commits itself to the web module.
The web module was previously introduced as a tool to gain advance certainty on how the working relationship between a principal and a contractor should be classified. The web module consists of a series of questions to assess whether there is an employment relationship or not. If there is no employment relationship, the web module issues a principal’s statement, which provides certainty to the principal that a specific assignment can be performed without it being requalified as an employment relationship. This means that no payroll tax needs to be withheld and paid and that no social security contributions are due. The principal's statement is only valid if the questions in the web module were answered truthfully, and if in practice, the work is carried out as stated. The principal's statement does not have an impact on income tax.
It is not compulsory for principals to use the web module: it is only a tool to help them assess their relationship with the contractor.
Second test phase
For the second test phase, various components of the web module's questionnaire were changed. In addition, a separate questionnaire was created to assess the employment relationships for ‘contracting work agreements’ and ‘intermediary agreements’. In the latter situations, there is no deemed employment relationship if the contractor is an entrepreneur, but it is not easy for the principal to assess that in a simple manner. Over the coming months, the questionnaires will be developed further, with the aim of obtaining certainty for such situations as well.
During the second test phase, experts examined 84 real cases, and compared the results against the outcome of the standard questionnaire in the web module completed by the principals. The module awards points to questions or combinations of questions. The lower the score, the higher the chances are that a particular situation does not qualify as an employment relationship. It is remarkable that in almost half (40) of the cases in which a principal hires a contractor, the web module gives a strong indication for ‘employment relationship’. In 21 of the cases, the web module resulted in a principal's statement, and in 23 of the cases the web module was unable to draw a conclusion. For 21 of the cases where the web module resulted in a principal's statement (person is self-employed, no deemed employment), the experts reached a different conclusion in 14% of the cases, and the principal's statements may have been issued wrongly.
And now? A pilot study
On assessing the web module, the government concluded that these error margins are acceptable. A pilot study of the web module is expected to be launched this autumn. At this stage, the questionnaire's outcome does not have legal status, and the web module solely works as an information tool.
The government wants to implement the web module after the pilot phase. After six months, it will be examined to what extent (in phases) enforcement can commence. The government will take a decision this autumn on a further extension of the current postponement of the enforcement regime that is applicable until 1 January 2021. Under that regime, the Dutch Tax Authorities will only impose supplementary payroll tax assessments if the principal has ‘malicious intent’ or if the principal has failed to adjust its working methods within a reasonable period following instructions from the Dutch Tax Authorities.